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Facts
Arvind Charitable Trust, a charitable organization, mistakenly reported Rs. 61,37,740 as corpus funds in its return of income for AY 2015-16, even though these funds were not actually received. The Centralised Processing Centre (CPC) initially taxed this amount as income, then reversed it upon rectification, but later reinstated the demand. The CIT(A) upheld the addition, asserting that the trust was not registered under Section 12A/12AA and therefore not entitled to exemptions under Sections 11 and 12, treating the corpus funds as taxable income.
Held
The Tribunal held that corpus funds are capital receipts and cannot be treated as income, regardless of whether the trust is registered under Section 12A/12AA of the Income Tax Act. It clarified that the assessee had not claimed exemptions under Sections 11 and 12, but merely contended that the corpus funds were capital in nature, a position supported by previous tribunal and high court rulings.
Key Issues
1. Whether corpus funds, even if mistakenly declared but not actually received, can be treated as taxable income under Section 143(1) and 154 proceedings. 2. Whether corpus funds are considered capital receipts and thus not taxable, irrespective of the trust's registration status under Sections 12A/12AA of the Income Tax Act.
Sections Cited
143(1), 154, 11, 12, 12A, 12AA
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Soundararajan K
O R D E R
Per Soundararajan K, JM :
This is an appeal filed by the assessee challenging the order of the National Faceless Assessment Centre / Commissioner of Income- tax (Appeals) [“CIT(A)” for short] dated 19.02.2024in respect of assessment year 2015-2016, and raised the following grounds:-
“1. The order dated 19-2-2024 passed by the CIT(Appeals), National Faceless Appeal Centre, Delhi confirming the rectification order dated 28- 6-2019 u/s 154 r.w.s 143 (1) of the Income tax Act issued by the Deputy Commissioner of Income Tax, Centralised Processing Centre, Bengaluru for the AY 2015-16 is illegal, erroneous, arbitrary and unjustified 2. The CIT (Appeals) ought to have held that the addition of Rs 61,37,740/-as income of the appellant in a proceeding under section 143(1) r.w.s 154 of the IT Act is beyond the scope of 143(1) proceedings.
. Arvind Charitable Trust.
3. The CIT (Appeals) failed to consider the specific contention of the appellant, which was explained in detail in the written submissions dated 10-12-2023 and 16-2-2024, that the appellant Trust has not received any corpus fund or the Trustees has not brought in to the appellant Trust any corpus fund even though it was decided by the Trustees to bring in corpus fund totaling to Rs 61,37,740/- and the appellant Trust while filing the return of income for the AY 2015-16 had mistakenly shown Rs 61,37,740/- as voluntary contribution forming part of Corpus.
The CIT (Appeals) ought to have considered the above aspect and held that the appellant Trust having not received any corpus fund i.e Rs 61,37,740/- and it was a factual mistake on the part of the appellant Trust in showing Rs 61,37,740/- as the Corpus fund while filing the return of income for the AY 2015-16 on the belief that the Trustees will bring in funds as corpus which in reality did not materialize and therefore the addition of Rs 61,37,740/- as income of the appellant Trust is erroneous, illegal, unjustified and is unwarranted.
It is submitted that the appellant had made it very clear before the CIT(Appeals) with supporting documents that the amount of Rs 61,37,740/-was not received by the appellant Trust and the said amount was not brought in as the Corpus of the appellant Trust during the relevant assessment year and as it was the intention of the Trustees to bring in the corpus fund of Rs 61,37,740/-, the same was wrongly shown as Corpus of the Trust at the time of filing the return for the AY 2015-16. In the balance sheet filed for the AY 2015-16, it was shown that the funds are with the Trustees, which makes it clear that the amounts were not brought to the appellant Trust. That the Trustees did not bring in any funds to the trust and finally the Trust did not take off as the Trust did not get the registration u/s 12A of the Income Tax Act, thereby the Trustees dropped the plan of brining in the funds to the Trust. The CIT (Appeals) failed to consider the matter in the right perspective.
6. The CIT (Appeals) ought to have held that addition made in the case in a proceedings under section 143(1) r.w. 154 is without jurisdiction and unwarranted.
The CIT (Appeals) failed to consider and appreciate the fact that after the filing of the return, a notice was issued stating that the return was defective and granting time to cure the defects. Thereafter the balance sheet of the Trust was submitted showing Corpus fund of Rs 61,25,140/- and stating 'funds with Trustees'. After curing the defects in the return, the return was processed and an intimation dated 28-2-2018 u/s 143 (1) off the Income Tax Act was issued taxing the corpus fund of Rs 61,25,140/-as the income of the Appellant Trust. The appellant filed a rectification application against the treating of the corpus fund as the income of the appellant, which was allowed and rectification order dated 17-9-2018 under section 154 of the IT Act was passed deleting the addition made on account of the corpus fund as the income of the appellant. Thereafter, again a rectification order dated 28-6-2019 under section 154 of the IT . Arvind Charitable Trust. Act was issued rectifying the order dated 17-9-2018 and erroneously making the addition treating the corpus fund of Rs 61,25,140/- as the income of the Appellant, which is challenged in the appeal. The CIT (Appeals) failed to consider the issue in the right perspective.
8. It is submitted that a voluntary contribution received by a trust with a specific direction that it shall form part of its corpus fund is a capital receipt and therefore not an income chargeable to tax at all, irrespective of whether the Trust is registered under section 12A or not. Several Benches of the Income Tax Appellate Tribunals/Courts have taken the above view. Even assuming for the sake of argument that the funds were received by the Trust as Corpus Fund (actually the fund were not received by the appellant Trust in this case), the CIT (Appeals) ought to have held that the corpus fund cannot be taxed in the hands of the Trust in a proceedings under section143 (1) of the Income Tax Act, as the issue is debatable issue and therefore outside the scope of section 143(1) or u/s143(1) r.w.s 154 of the income Tax Act.
9. The CIT (Appeals) also ought to have held that only prima facie adjustments could be made under section 143 (1) of the IT Act and no addition could be made for corpus fund in a proceedings u/s 143 (1) or u/s) 154 r.w.s 143 (1) of the Income Tax Act.
For these and other grounds to be urged at the time of hearing, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to set aside the order of the CIT (Appeals), NFAC, Delhi and the order dated 28-6-2019 issued u/s 154 r.w.s 143 (1) of the IT Act for the AY 2015-16 and allow the appeal by rendering justice to the appellant.”
The assessee is a charitable private trust and during the year, the trust received corpus funds from the trustees. The trust filed its return of income on 30.3.2017 declaring the total income at Rs.12,600. Thereafter the return was processed u/s.143(1) of the Act in which the CPC had determined the total income at Rs.61,37,740. The CPC while processing the said return, had taken the corpus fund shown in the balance sheet as received from the trustees and the said fund was added as income and taxed accordingly. Thereafter the assessee filed a rectification petition before the CPC requesting the CPC to rectify the intimation on the ground that the corpus fund was proposed to be contributed by the trustees and not collected from the public and . Arvind Charitable Trust. therefore the said corpus should not be added as income. The CPC accepted the rectification petition filed by the assessee and reduced thedemand by accepting the returned income. Subsequently, the CPC issued another rectification order in which the very same demand, which was raised in the intimation was sent to the assessee. The assessee again filed a rectification application which was rejected by the CPC and therefore the assessee had challenged the intimation received u/s.143(1) of the Act on the ground that the corpus fund was not actually contributed by the trustees as well as the relatives of the trustees. Even assuming that the corpus fund was paid to the assessee, it should not be treated as income under the provisions of the Act. The ld.CIT(A) had not accepted the case of the assessee for the reason thatthe assessee is not entitled to claim exemption u/s.11 and 12 of the Act since the assessee has not registered u/s.12AA of the Act. The ld.CIT(A) also observed that the funds were received from the donors but the assessee had not shown any plausible explanation where the fund has gone and therefore treated the said corpus funds receipts as income in the hands of the assessee. As against the said order of the ld.CIT(A), the assessee is in appeal before this Tribunal.
At the time of hearing the ld.AR submitted that once the fact is admitted that the amounts are accepted as corpus funds, the same could not be treated as income whether the assessee has got registration u/s.12AA of the Act or not. The ld.AR further filed a paper book and also relied on the order of the Pune Tribunal in dated 29.01.2018 in support of his proposition that the corpus funds
4. The learned Departmental Representative relied upon the orders of the lower authorities and prayed to dismiss the appeal of the assessee.
5. We have heard the arguments of both the sides and perused the material available on record. Right from the beginning the assessee submitted that they intended to get the funds from the trustees and other relatives but unfortunately the assessee had not received the funds which were meant for corpus. Based on that the financial statements were prepared and the said amount of Rs.61,25,140 were shown as corpus funds. The Assessing Officer as well as the ld.CIT(A)had not disputed the said fact that the amount received by the assessee is a corpus fund. But the ld.CIT(A) had observed that the assessee had not registered u/s.12A / 12AA of the Act in order to claim the exemption u/s.11 and 12 of the Act.
We have perused the order of the AO as well as CIT(A) and the paper book submitted by the assessee from which we came to know that the corpus funds were received by the assessee which was also properly shown in the financial statement but the CPC while processing the said return, had originally treated the said amount as income and sent the intimation, raising an demand of Rs.21,46,830. Subsequently, the CPC had revised the said intimation on the basis of the rectification application filed by the assessee. Later on, the CPC again rectified the order and restored the original demand in which the corpus fund was treated as income of the assessee. The ldCIT(A) on the wrong notion . Arvind Charitable Trust. had dismissed the appeal that the trust is not eligible for any deductions u/s.11 of the Act as if the assessee had claimed the said exemption. In our opinion the said finding is not correct. When the assessee had received corpus funds and also recorded the said amounts in their books of account as corpus funds, treating the said funds as the income of the assessee is without any basis. Whether the trust had registered u/s.12A / 12AA of the Act, the corpus funds received by the assessee could not be treated as income. In the present case the assessee had also not claimed any deduction /exemption u/s.11 and 12 of the Act in order to render the finding that the assessee had not registered u/s.12A / 12AA of the Act. All along the claim made by the assessee is that the amounts are nothing but corpus funds which was also accepted by the authorities below but wrongly treated the said corpus funds as income, which are all in capital nature. It is not the donations received by the assessee but the amounts are nothing but corpus funds received from the trustees as well as the relatives of the trustees. We have also perused the ITR, statement of income and the balance sheet filed by the assessee and on perusing the said documents, we are of the opinion the assessee received only corpus funds and not donations received from third parties. We have also perused the order of the Pune Bench of the Tribunal in which the Pune Tribunal had extracted the order of the Delhi High Court and gave its finding which is as follows:-
“22. The above extracted portion is relevant for the ratios that the Corpus donations received by the Trust, which is not registered u/s.12A / 12AA of the Act, are not taxable as they assume the nature of `Capital receipt’ the moment the donations are given to the “Corpus of the Trust”.”
. Arvind Charitable Trust. 7. The facts involved in the present appeal is also similar to the facts narrated in the Pune Tribunal’s order and therefore, the findings given in the said order is equally applicable to the assessee’s case on hand.
In view of the above said facts and as well as on the principles laid down by the Pune Tribunal, we are also of the view that the corpus funds received could not be treated as income, whether the trust is registered u/s.12A / 12AA of the Act, since they are in the nature of capital receipts.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 14th day of March, 2025.